Cost-conscious US airlines outsource maintenance jobs

Agencies|

Jul 03, 2006, 12.47 AM IST

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CHICAGO: Cash-strapped US airlines, desperate for cost savings, are increasingly turning over labour-intensive aircraft maintenance to outside vendors where the jobs can be done cheaper by non-union workers. The volume of outsourced work is expected to grow, as large network carriers compete head-on with younger low-cost airlines who already use outside maintenance vendors, experts say.

US carriers outsource nearly half of their fleet maintenance, according to some reports, and many carriers have boosted labour savings as a result. But analysts say outsourcing can be inefficient, and some doubt the quality of outsourced work. “In terms of absolute dollars, I think it is paying off,” said Stuart Klaskin at KKC Aviation Consulting. “In terms of the overall picture, I think it has yet to be decided.”

“In terms of efficiency of operations I think it’s still up for grabs,” he said. Mr Klaskin said airlines may forfeit geographic convenience by sending aircraft to outside vendors. Nevertheless, the maintenance outsourcing trend is in full swing. Eclat Consulting says that in terms of dollars spent, network carriers outsource 40% of their maintenance while low-cost carriers outsource half.

The Air Transport Association says that in ’05 airlines outsourced about 30% of their heavy maintenance checks, compared with 23% in ’04. A Mercer Consulting study underscores the trend and illuminates growing demand for maintenance, repair and overhaul (MRO) vendors. The study shows that 85% of MRO providers expect increased revenue and that 56% of airlines plan to increase MRO spending.

“We’ll continue to see selective outsourcing of maintenance activity from legacy carriers to lower-cost domestic and international providers,” said Mercer’s Geoff Murray. He said key drivers of the outsourcing trend include increased revenue streams and airline capacity cuts that have fewer planes flying more hours.

Northwest Airlines outsources all its “heavy maintenance” work and most of its line maintenance. The airline ramped up its outsourcing in August, when its union-represented mechanics walked off the job over a contract dispute.

The carrier, which since has replaced the workers with outside vendors, previously had been bound by a labour agreement to outsource no more than 38% of its maintenance. Northwest said the outsourcing enabled it to reach a labour savings goal of $203m a year. US Airways Group has outsourced about 60% of its airframe maintenance over the last year and a half.

Delta Air Lines outsources about 20% of its maintenance. Continental Airlines keeps the bulk of its maintenance work in-house and has been hiring technicians for the last two years. AMR, parent of American Airlines, prides itself on bucking the outsourcing trend. The carrier said it does nearly 90% of its own maintenance work, compared with 75% five years ago.

AMR, in fact, has emerged as a major MRO provider for other airlines. Other carriers like Delta and UAL’s United Airline also takes in some outside work. The cost of outsourcing can be as much as 75% lower than in-house work, said Mercer’s Mr Murray. But price isn’t everything, says the Aircraft Mechanics Fraternal Association, which has concerns about the quality of work performed by outside vendors.

Mechanics employed by airlines often have more experience with the fleet operated by a given airline, said Michael Ayala, AMFA National Safety and Standards director. Those mechanics generally have licensing from the Federal Aviation Administration.

Third-party vendors often use unlicensed technicians who work under the supervision of a licensed technician, Mr Ayala said. “If you owned an $80,000 Mercedes Benz, would you send it over to the Shell station? There’s some things you just wouldn’t do,” he said.